What are Small Loans?
A small loan is a type of financial product designed to help you out when you have a financial emergency and need a quick, simple solution.
Small loans are usually less than £1000 in value and paid back within 12 months. Small loans are commonly paid back in a few weeks if they are just taken to cover a temporary cashflow situation.
When should I consider a small loan?
There are a number of scenarios where you might consider taking out a small loan. If you have an unexpected bill or a cash emergency you did not anticipate, a small loan can be useful if you do not have enough money in your bank account.
How can a small loan help me?
Used responsibly, a small loan can help ensure you do not miss any urgent payments when you do not have enough money in your bank account. A small loan can also help you to pay for any unexpected financial emergencies such as a car repair or a broken boiler. Not being able to make important payments such as these can be very stressful. It can add discomfort or inconvenience to your life if you have to wait a few days or weeks to save up the money when all you really want is a quick and easy solution.
When would you use a small loan?
A small loan could be useful in a variety of situations:
- Paying an urgent bill
- Vehicle repair
- Broken boiler
- Medical treatment
- Home improvements
Because small loans are usually just a few hundred pounds in value and paid back over a few weeks or months, they are perfect for cash emergencies.
Saving for emergencies can be very challenging, especially when we don’t see them coming.
The MoneyAdviceService recommends saving at least 3 months of your monthly salary.
This can be hard to do with expensive living costs.
Using a small amount short term finance means you can resolve the issue quickly and then repay the loan (plus interest) in a structured repayment schedule.
How do small loans work?
A small loan works by submitting a loan application (usually online) which is then seen by a lender or, panel of lenders, who will assess your application for affordability and potential risks of non-repayment.
Applicants need to be over 18 years of age and a UK resident. It is essential that customers are earning a regular income (full-time or part-time). Earning at least £750 per month is a common need from lenders who specialise in smaller loan products.
Applicants must have a working email address and mobile phone number. This is to ensure you can be easily contacted and help speed things up as you can often digitally sign the loan agreement upon acceptance.
Finally, customers must have a working debit account, with an active debit card to receive payments into their account. Collections can then be made by the lender using a system known as continuous payment authority.
How do you apply for a small loan?
There are 2 ways to apply for a small loan. You can either apply online or you can apply in-store. For most people, applying for a small loan online is the quickest way and most convenient method.
Applying for a small loan online can be done through your mobile device, tablet or desktop. There are many providers of smaller credit products and both direct lenders and brokers can offer you an online solution.
Typically, an online application form will ask you for some key information about yourself and your spending habits. It is important to be as honest as possible to ensure you do not make a mistake or provide incorrect information. If you do, it might impact your chances of success.
It will normally take anywhere from 3-5 minutes to complete an online form and a decision should be returned in less than 3 minutes.
Applying with CashLady
At CashLady, when we process your application we show it to our panel of lenders. We then match you with the loan provider most likely to fund your application.
We are very strict with the lenders that we work with. We only work with those that follow responsible lending guidelines. All our lenders are authorised and regulated by the Financial Conduct Authority (FCA) and have a commitment to treating customers fairly.
The application process for a small loan in-store will be quite similar to the online channel. Lenders will typically want to see similar information.
Because lenders will often want to see some evidence of your income, it can be useful to take at least 3 months of recent payslips in-store. It is also advisable to take at least 1 form of photo ID and a recent utility bill.
The decision may not be as quick as an online process, but a store may consider your application in a different way and may be more relaxed about deciding to lend you the money you need.
How soon do I have to pay a small loan back?
A small loan will have to be paid back according to the repayment schedule detailed in your loan agreement. A small loan is just like any other type of credit agreement. The good news is that you can almost always make early or additional payments to repay your loan early. Doing this will mean you get to pay your loan back early and demonstrate your credit-worthiness to any future credit providers you may deal with. Check the terms and conditions received from your lender to understand their specific policies.
Am I eligible for a small loan online?
Anybody is eligible to apply for a small loan online. If you are looking now, you could complete our online application form and receive a quick loan decision from one of our lenders. If successful, they may be able to transfer your funds the same day.
How much will a small loan cost?
The cost of a small loan will depend on the offer you receive from the credit provider. Most unsecured small loans have a higher interest rate than mainstream personal loans because they are designed to be taken out over shorter periods.
What is the interest rate on a small loan?
If you choose a small loan from a high-cost short-term credit provider (meaning the annual interest rate is more than 100%) the representative APR can often be over 1000%.
However, the Financial Conduct Authority (FCA) have put price caps in place. These price caps mean you will never pay more than 0.8% interest per day.
The interest rate only part of the equation when working out the cost of borrowing. When you receive a loan offer, look at what you will be paying back each month and/ or over the duration of the loan. You will then be able to understand how much your loan is costing you each month.
How do small loans affect your credit score?
If you take out a small loan and pay it back in full and on-time, your credit score should not be adversely affected. The opposite should be true as you are repaying every penny you have borrowed (with interest) on time. Lenders and credit bureaus will see this type of money management and financial discipline as a good indicator of trust.
If you take out a small loan and do not pay it back in full, or on time, you may be viewed very differently. Not making your loan repayments on time could result in a negative action on your credit score, making it more difficult to get a loan in the future.
What are Small loans for bad credit?
Small loans for bad credit are smaller value credit products designed for people who have low credit scores. Because some people have a lower credit rating, they can be seen as riskier to lend to than others. Therefore, a loan product carrying a higher rate of interest gives some element of safeguarding to lenders who want to broaden their customer base and help people with lower levels of credit-worthiness.
What types of small loan are available?
Whilst smaller, unsecured, online loans are quite commonplace, they are not the only type of small loan available.
Other types of smaller credit options include:
- Logbook Loans
- Payday loans
- Credit Cards
Whatever type of small loan you are considering, make sure you fully understand what your obligations are and what the true cost of borrowing is.
- Easy online application process
- Structured repayment schedule
- FCA price cap protection
- Borrow what you need
Small loans: Summary
Despite their convenience and ease of use, small loans should not be considered as a long-term financial solution. They should be used sparingly and in emergency situations. Ultimately, small loans are still short-term solutions.
If you find yourself struggling financially, it may be useful to seek advice from organisations such as the Money Advice Service or Stepchange.
Everybody has cash emergencies from time to time and if you do not have sufficient funds, or have family or friends able to help you out, then applying online for a small online loan could be an appropriate option.
It is also important that higher cost loans designed for short-term needs are only used to cover immediate, unforeseen expenses and not spent on more frivolous purchases.